India Blackouts Spur $18 Billion Power Grid Upgrade

Pedestrians walk past fruit vendors at a market in Kotla Mubarakpur, New Delhi, India. A series of failures and excessive demand on the national grid knocked out power for 640 million people in northern and central India on July 31, a day after a separate blackout left 360 million in seven states without lights. Photographer: Sanjit Das/Bloomberg

Sept. 17 (Bloomberg) -- Power Grid Corp. of India Ltd., the
nation’s largest electricity transmission company, may exceed a
1 trillion rupee ($18 billion) spending plan to upgrade its
network and avoid a repeat of the world’s biggest blackout.

Revenue of the state-owned company, which is doubling
expenditure in the five years through March, 2017, may rise
fourfold in the period following completion of transmission
projects, R.P. Sasmal, director of operations said in an
interview. The grid aims to boost its market share to 70 percent
from 50 percent as the company increases spending at a rate that
will dwarf its competition, he said.

The utility, based in Gurgaon near New Delhi, is taking
steps to prevent another grid failure like those on July 30 and
31 that left a region home to more than half of the country’s
1.2 billion without electricity, halting transport services and
forcing businesses to rely on generators. Power Grid reported
record sales and earnings in the financial year through March
31, while shares have climbed 20 percent in 2012, almost
matching gains in the benchmark Sensitive Index.

“Making sure a collapse doesn’t happen again is our top
priority,” Power Grid Chairman R.N. Nayak said in an interview
separately on Sept. 14. “We may end up crossing that 1
trillion-rupee spending mark to strengthen and stabilize the
gaps exposed by the blackouts.”

Farmer Dependence

The company’s network failed because of a mismanagement of
power sales and its emergency backup system, according to a
government inquiry. At the time of the blackout, India was
enduring its driest monsoon season since 2009, forcing farmers
in northern India to increase their dependence on electrified
irrigation pumps.

When a link in north India failed while transferring about
4,000 megawatts from India’s western grid to its northern
network to meet demand, Power Grid was in the midst of scheduled
maintenance of its backup lines, triggering the region-wide
blackout, according to the government report.

The company’s most urgent project aims to connect two
portions of India’s network: the northern grid which accounts
for 75 percent of the country’s power capacity, to its system in
southern India. Linking the two will allow the south to transfer
surplus power to supply deficient states in the north, where the
grid collapse occurred.

“We have stepped up our efforts to increase
connectivity,” Sasmal said. “What some companies plan to spend
in five years, we are spending that in one month.”

Bond Sale

The company has already approved projects worth 800 billion
rupees and plans to raise at least 700 billion rupees in debt
over the next five years, Sasmal said. Of that, about a third
has already come from local and foreign lenders and another 40
billion rupees will be raised through a bond sale later this
month, he said.

While Power Grid hopes to shed the lingering effects of the
grid failure, it will continue to be dependent on India’s
generators for business. Prime Minister Manmohan Singh is
seeking investment in the power industry as he targets an
additional 76,000 megawatts by 2017.

Should producers fail to meet the goal, as has been the
case for the last 61 years, Power Grid could fall short of its
investment target, said analyst Abhishek Patel, with Mumbai-based ITI Securities Ltd.

Facing Headwind

“Power generators are facing a lot of headwinds, from lack
of coal supply both locally and from abroad, financing
challenges and land clearance delays,” Patel said in an
interview. “Assuming generators fall short of their capacity
target by about 20 gigawatts, we’re estimating that Power Grid
will fail to reach its spending target.”

India has missed every annual target to add electricity
production capacity since 1951, resulting in a peak demand
deficit of nearly 10 percent. Power cuts are common across
swathes of India as the country battles outages that the
government says shave about 1.2 percentage points off annual
economic growth.

India plans to spend 13.73 trillion rupees to expand and
upgrade its power systems in the next five years, most of which
will be led by generators including state-owned NTPC Ltd.,
India’s largest producer, Tata Power Ltd., Reliance Power Ltd.,
Adani Power Ltd. and Lanco Infratech Ltd.

The nation will depend almost entirely on Power Grid to run
power lines from their plants to local distributors. The
transmission industry needs to spend 1.25 trillion rupees to
match the increase in generation, said Subhranshu Patnaik, a
Gurgaon-based senior director at Deloitte Touche Tohmatsu India
Pvt.

‘Not Rocket Science’

“It’s not rocket science,” Patnaik said. “Power Grid’s
ability to deliver has never been in doubt; they are far more
efficient and face much less competition than generators like
NTPC. Some states are giving up on adding their own power lines,
leaving almost the entire business to Power Grid.”

Power Grid fell 2 percent to 117.6 rupees at the close in
Mumbai. The BSE India Power Index rose 0.4 percent.

Sales at the company have more than doubled from four years
ago to 100.4 billion rupees in the 12 months ended March 31,
with an annual average growth rate of about 23 percent,
according to data compiled by Bloomberg. Net income more than
doubled as well to 32.5 billion rupees during the same period.

Forty of the 46 analysts covering the company recommend
buying the stock, with four rating it a hold and two a sell,
data compiled by Bloomberg show.

The company has undertaken development of 11 high capacity
transmission corridors to connect power from various projects
developed by India’s electricity producers to the network.
Should those utilities succeed in adding capacity, Sasmal
estimates the company’s annual revenue will rise to 460 billion
rupees in the 12 months ending March 31, 2017.

“We expect all our projects to be implemented on schedule,
first of which will be up and running next year,” said Sasmal.
“The government is backing all of them as it’s critical for
achieving self-sufficiency in power.”